GOP Nightmare: Obama Fixes The Economy
President Obama’s bold decision to ignore GOP obstructionism and make recess appointments at the Consumer Financial Protection Bureau and the National Labor Relations Board started off 2012 with a bang, inspiring long-deferred jubilation among liberals and paroxysms of outrage from conservatives. There’s an enormous irony here: After three ridiculous years in which conservatives unfairly and absurdly attacked Obama for impersonating a socialist tyrant, the president is suddenly acting like an actual leader — and now the right is really freaking out.
Here’s the nightmare scenario: What if Obama runs totally wild and uses his executive powers to fix the economy? He might, gasp, win reelection!
Sounds crazy, I know. But that’s exactly the sense of panic that emerges from American Enterprise Institute blogger James Pethokoukis’ excited-to-the-point-of-stark-terror post “January Surprise: Is Obama preparing a trillion-dollar, mass refinancing of mortgages?”
Citing speculation from Jaret Seiberg, an analyst at Guggenheim Securities, Pethokoukis paints a picture in which Obama recess appoints a replacement for the current acting director of the Federal Housing Finance Agency (FHFA), Bush appointee Edward DeMarco. DeMarco’s job is to oversee the giant mortgage finance agencies Fannie Mae and Freddie Mac. DeMarco has long made it clear that he believes his primary job is to improve the financial bottom line of Freddie and Fannie, rather than employ the huge power the two government-sponsored enterprises (GSEs) exert over the residential mortgage market to make it easier for homeowners to refinance their mortgages and escape the threat of foreclosure. With DeMarco out of the way, so the theory goes, the Obama administration would have a free hand to push through a much more aggressive plan to help struggling homeowners.
Seiberg:
That could lead to a mass refinancing program for agency-backed mortgages that would go well beyond the existing HARP program. That could hurt agency [mortgage-backed security] pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.
Pethokoukis:
…[S]ome $3.7 trillion of mortgages would be refinanced. That’s right, this would be the Mother of All Mortgage Refinancing Plans. It would help roughly 30 million borrowers save $75 billion to $80 billion a year. As Mayer puts it: “This plan would function like a long-lasting tax cut for these 25 or 30 million American families.” … Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus — as measured over a decade — that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Cash in their pockets. Imagine the electoral impact on key states, such as Florida, suffering from both high unemployment and devastated housing markets.
If only. As a Federal Reserve white paper analyzing problems in the housing sector and reviewing potential solutions noted on Wednesday, 12 million U.S. homeowners are currently underwater on their mortgages. The steady flood of newly foreclosed properties hitting the market — expected to be a million per year in both 2012 and 2013 — exerts a relentless downward pressure on home prices. There are few things the Obama administration could do that would have a bigger positive effect on the overall economy than a really large-scale program of homeowner relief.
So how realistic is the January surprise scenario? As with all good conspiracy theories, there are some grains of truth. DeMarco has definitely been obstructing the Obama administration’s efforts at housing reform. Even the usually mild-mannered Federal Reserve hints at this reality in its white paper. Sure, there would be a cost to a large-scale refinancing program, but the benefits might well outweigh the downside:
“Nonetheless, some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.
Protecting Fannie and Freddie’s balance sheet at the expense of the nation’s is penny-wise and pound-foolish, in other words. Why go to all the trouble and expense of bailing out the GSEs if not to use them to good effect?
However, that still doesn’t quite connect the dots between the appointment of Richard Cordray to run the CFPB and a possible recess appointment that would replace Edward DeMarco. First of all, the Obama administration’s efforts to reboot housing have been, at best, halfhearted, and their failure more properly should be blamed on the White House than a single agency administrator. (And late Thursday afternoon, Bloomberg News reported that the White House was denying it had any new refinancing plan in the works.) Secondly, the legal basis for shoving out DeMarco and replacing him with a recess appointment seems especially iffy. Cordray is considered an independent regulator — so, theoretically, he can’t simply be fired at will by the White House, (although his “acting” status does inject some fuzziness into the equation). According to reporting by Ezra Klein and Brad Plumer, Treasury Secretary Timothy Geithner explored the possibility of firing DeMarco, but ultimately found it unfeasible. Republicans are already threatening to sue the administration for the current batch of recess appointments; axing the existing director for the FHFA in pursuit of an election-year housing reform agenda could easily precipitate a constitutional crisis.
But then again, Republicans would only have themselves to blame for the chaos that would ensue if Obama did take the unlikely step of all-out war. In 2010, the Obama administration proposed North Carolina banking commissioner Joseph Smith as its nominee for FHFA director. But as with so many of Obama’s economic-policy-related nominations, Smith’s appointment by the Senate Finance Committee’s ranking Republican, Richard Shelby, was scuttled on the grounds that Smith was unlikely to resist Obama’s housing reform agenda.
So there is after all a direct connection between the Cordray recess appointment and the FHFA. Senate Republicans have routinely blocked Obama’s executive branch appointments, not because they have any particular problem with the quality of the people being proposed for the jobs, but because they want to block Obama’s reform agenda. It’s a travesty of government — and a made-to-order campaign platform. Want to know why the economy sucks? Because Republicans won’t let Obama appoint the people necessary to take direct action — whether that be at the Federal Reserve, or the FHFA, or anywhere else.
By: Andrew Leonard, Salon, January 5, 2012
Two More Ways Republicans Are Undermining Financial Regulations
After Republicans took over the House of Representatives in November 2010, the incoming House Financial Services Chairman, Rep. Spencer Bachus (R-AL), said he believes Washington’s role is to “serve the banks.” And the GOP has done its best this year to follow that directive, by denying regulators the money they need to implement the Dodd-Frank financial reform law, trying to repeal or water down some of the law’s key provisions, and blocking Obama administration nominations to regulatory posts.
In the budget deal that averted a government shutdown last week, the GOP kept it up. While the Securities and Exchange Commission was granted a desperately needed increase in funding, the Commodity Futures and Trading Commission, which is given the Herculean task of policing the derivatives market by Dodd-Frank, was not so lucky:
Under the new deal, the Commodities Futures Trading Commission will get $10 million more for staffing, thus making layoffs for the agency less likely in 2012. But that money won’t come through a funding increase: In the end, Republicans refused to budge on the overall funding level for the agency, which will stay at $205 million. Instead, $10 million for staffing will be shifted out of the agency’s budget for information technology. The overall level of funding falls significantly short of President Obama’s own request for the CFTC — $308 million, which would be an increase of almost 50 percent — as well as the Senate Democrats’ request for $240 million.
Senate Republicans have also put a hold on a slew of nominations to fill financial regulatory positions, ostensibly to ensure that President Obama doesn’t make recess appointments:
Several of Obama’s picks are waiting to be confirmed by the Senate, including Martin Gruenberg to be chairman of the Federal Deposit Insurance Corp, Thomas Hoenig to be the FDIC’s vice chair and Thomas Curry to lead the Office of the Comptroller of the Currency.
But Republicans refused to sign off on the list, complaining that the White House did not give them assurances Obama would not use a long congressional recess to make temporary appointments.
These kinds of actions have the effect of undermining Wall Street reform and preventing regulators from ensuring that the 2008n financial crisis doesn’t have a sequel. The end result is that Bachus’ marching order gets fulfilled, as the GOP helps the banks go right back to the same practices that brought down the economy in the first place.
By: Pat Garofalo, Think Progress, December 20, 2011
What Did The Iraq War Cost? More Than You Think.
By its very definition, war spending—indeed, any government spending—improves GDP, as anyone who has ever taken an economics 101 course knows. Spending on World War II is credited with helping the U.S. decisively climb out of its depression slump. Likewise, the Iraq War helped the economy in some ways. But to many experts, the costs will far outweigh and outlast the benefits.
As U.S. operations in Iraq end, tallying up the costs and benefits of a nine-year ordeal is a daunting task. Estimates on Iraq War spending vary. The Congressional Research Service has put the Operation Iraqi Freedom pricetag at $806 billion. President Obama said that the Iraq War would cost over $1 trillion, all told. Either way, compared to past U.S. conflicts, spending on the Iraq war has been relatively small—at its height, spending on WWII helped drive government spending to 42 percent of GDP, according to the Congressional Budget Office. At its height, operations in Iraq cost around 1 percent of GDP.
But the long-term costs will well exceed this total, and the budgetary consequences are far-reaching.
On the positive side, the Iraq War did bolster the economy in some ways.
“It reduced unemployment compared to what it otherwise would have been” both with military and contractor jobs, says Stan Collender, a senior partner at Qorvis Communications who has also worked on both the House and Senate Budget Committees.
According to figures from the Commerce Department, GDP has grown at an average quarterly rate of 4.1 percent since the start of 2003, when the Iraq War began. While the war’s contribution to that growth was likely small, Collender believes it is significant.
“[Troops] were getting hazardous duty pay, which means they were sending more money home. We weren’t really on a wartime economy, certainly not compared to Vietnam or WWII, but you can’t say that it wasn’t an insignificant part of economic or GDP, given where the economy has been.”
Coming to a hard figure on the costs versus benefits of the Iraq War may indeed be impossible—particularly because untangling those costs from those of the simultaneous war in Afghanistan is difficult. However, it is clear that the costs of the war will ultimately go far beyond those of the costs of combat and reconstruction.
One key way that the war’s costs will outlast its operations is in veterans’ health care. A recent paper from the Center for American Progress estimates that the projected total cost of veterans’ healthcare and disability will run between $422 billion and $717 billion.
Columbia University Economics Professor Joseph Stiglitz and Linda Bilmes, a lecturer at Harvard’s Kennedy School of Government, have also argued that fighting in Iraq diverted resources from Afghanistan, prolonging conflict in that country. All told, Stiglitz and Bilmes have put the cost at well over $3 trillion.
Whatever the cost, some experts say that it wasn’t what was financed in the Iraq War but how it was financed that is problematic.
“The problem is not the impact on the GDP. It basically was financed through debt, which is a completely different issue,” says Anthony Cordesman, the Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies.
“It’s really the decision of how to pay for it that has had such a negative effect on the U.S. economy. Because unlike any previous war in U.S. history, this was paid for entirely by debt at the same time that we cut taxes,” says Bilmes. While entitlements and other mandatory spending make up a majority of annual federal budgets and contribute heavily to deficits and debt, the Iraq War also contributed significantly. The Center for Budget and Policy Priorities has estimated that the wars in Iraq and Afghanistan, together with the Bush tax cuts, will account for almost half of the projected $20 trillion debt in 2019.
Cordesman stresses that asking “what if” can be an exercise in futility. Calculating the opportunity cost of engaging in the Iraq War, as opposed to however else government might have spent (or not spent) the same amount of money, “borders on the absurd,” he says, as there are countless alternatives to any option. “The opportunity cost of every decision you take is almost inevitably suboptimal,” he says.
Aside from whatever opportunities the U.S. missed by engaging in Iraq, there are also unquantifiable costs. A recent memo from the Center for American Progress, a left-leaning think tank, argues that ending Saddam Hussein’s regime empowered Iran, “remov[ing] the most significant check on Iran’s hegemonic aspirations.” Many returning vets will also face personal economic difficulties, coming home to a difficult job market.
Of course, the human costs of the Iraq War are without a doubt its most lasting and tragic legacy. In addition to more than 32,000 U.S. soldiers wounded in Iraq, the war killed over 4400 U.S. soldiers, according to Icasualties.org, not to mention more than 104,000 Iraqi civilian casualties, according to Iraqbodycount.org.
By: Danielle Kurtleben, U. S. News and World Report, December 15, 2011
Gingrich’s Tax Plan Would Give Millionaires A $600,000 Tax Cut
The latest 2012 GOP presidential frontrunner, Newt Gingrich, has, like Texas Gov. Rick Perry (R-TX) before him, released a plan to overhaul the U.S. tax code by giving taxpayers the option of paying a single, flat, income tax rate, as opposed to using today’s progressive tax code. In fact, Gingrich goes a bit further than Perry, setting his flat rate at 15 percent, as opposed to Perry’s 20 percent.
Gingrich claims that his plan will “allow Americans the freedom to choose to file their taxes on a postcard, saving hundreds of billions in unnecessary costs each year.” However, according to an analysis by the Tax Policy Center, the plan will also achieve another of Gingrich’s ends — giving millionaires a tax cut of more than $600,000 per year:
Gingrich’s plan would create an optional 15 percent flat tax with a per-person deduction of $12,000. He would drop the corporate tax rate to 12.5 percent from 35 percent, allow businesses to write off capital expenses and eliminate taxes on capital gains and estates, according to his website.
People earning more than $1 million a year would receive an average tax cut of $613,689 in 2015, compared with what they pay now. That change would boost their after-tax income by 28.7 percent and put their average tax rate at 11.9 percent.
Under the plan, half of the entire benefit goes to the richest 1 percent of taxpayers. The richest 0.1 percent of the country will receive a tax cut worth nearly $2 million each and every year. These tax cuts are in addition to what the wealthy are already receiving from their disproportionate share of the Bush tax cuts.
The end result of the plan would be millionaires paying a lower tax rate than middle-class families, as a millionaire would pay an 11.9 percent rate, while a family making $40,000-$50,000 would pay 12.7 percent.
Gingrich has already criticized his top competitor, Mitt Romney, for not lavishing enough tax breaks onto the wealthy. And it would seem that Gingrich’s critique is extremely genuine, as his own tax plan hands out tons of breaks to the very wealthy, in the misguided hope that prosperity will then trickle down to everybody else.
By: Pat Garofalo, Think Progress, December 12, 2011
Withdrawing Unemployment Insurance Will Not Solve Job Crisis
1. The Long-Term Unemployed Are in Dire Financial Shape.
Eliminating unemployment insurance will make matters much worse for those who are already experiencing a financial disaster. In 2009, the Heldrich Center conducted a national survey of workers who lost a job during the recession. When we re-contacted them in August 2011, we found that 4 in 10 were still unemployed or working part time and looking for full-time jobs. Among that group, three quarters had been out of work for more than six months. Fully half had been jobless for more than two years. Their financial condition is dire. They have not only reduced spending on things they would like to have, like vacations and clothing, but also on things they need, such as food, transportation, and healthcare. Sixty percent have sold possessions and borrowed money from family or friends.
2. UI Benefit Support Makes Re-employment More Likely, Not Less.
Eliminating UI will lead to less job seeking, not more. Our surveys found that–compared to people without UI support–those receiving UI spent more time each week going to job interviews and job fairs, networking with friends and colleagues, and scouring the Internet and newspapers for job openings. Enrollment in UI programs keeps workers in the labor market. They get more advice, encouragement, and training. And, job seekers on UI are required to regularly report to state employment agencies about their job search activities.
3. Cutting UI Benefits will drive up the cost of other government programs.
Without UI payments, more unemployed workers will drop out of the labor market and fall into other government safety-net programs. Seven in 10 of the long-term unemployed workers in our study described their financial condition as flat-out “poor.” Yet, the average UI benefit of $1,200 per month–less than the $1,400 average monthly cost of housing in America–is often the vital source of income that enables them to pay their mortgage and feed their family. Withdrawing UI will not solve the job crisis in America, but it will drive up spending in other federal programs, such as food stamps, disability insurance, Social Security, Medicare, and Medicaid. Unemployed workers–who would much rather get a job than get a check from the government–will be driven to these programs as a last resort.
By: Carl E. Van Horn, U. S. News and World Report, December 9, 2011
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